Wake up, America, or lose the trade war

Wake up, America, or lose the trade war

Below are some excerpts from an opinion editorial by former South Carolina U.S. Senator Ernest F. Hollings (1966-2005) that ran in today’s Charleston Post and Courier.

Never one to mince words, Mr. Hollings lays the blame for our economic condition on the “free traders”. In his opinion, resurrecting our country’s manufacturing is the key to our future.

In his original piece, Mr. Hollings unfortunately and incorrectly dismisses small businesses as an economic engine. The reality is that manufacturing is dominated by small businesses.

In 2009 South Carolina had 5047 manufacturers of some kind with 90% having fewer than 100 employees and 84% having less than 50 employees. What’s good for manufacturing in this country is good for small business.

In the last 10 years we’ve lost a third of the nation’s manufacture in the trade war to offshoring. Long before the recession, Princeton economist Alan Blinder estimated that in 10 years the country would lose 30 million to 40 million jobs to offshoring. President Obama didn’t inherit just a recession. He inherited a financial collapse together with a job collapse from offshoring.

Stimulation won’t do. President Bush increased the debt and stimulated the economy $5 trillion in eight years. In the same period, household debt increased or stimulated the economy another $7 trillion. The Federal Reserve stimulated the economy a trillion dollars in the remainder of 2008. By January 2009, when Obama was sworn in as President, the economy had been stimulated $13 trillion in eight years, and we were losing exactly 799,000 jobs a month. President Obama in two years has now stimulated the economy another $3 trillion and last month unemployment increased. Stimulation is spent. We’re losing jobs not only from the recession but because we are not competing in the trade war.

The United States was founded in a trade war. The Mother Country forbade manufacture in the colony and required exports from the colony to be carried in the bottom of English ships. The Boston Tea Party that triggered the Revolution framed a Constitution calling for Congress to regulate trade — not freeing trade. In fact, the forefathers agreed to regulate trade four years before they could agree on First Amendment rights. The first bill to pass the United States Congress on July 4, 1789, was a protectionist tariff. We didn’t pass the income tax until 1913. We financed and built the United States into an industrial power with protectionism for the first hundred years, causing Teddy Roosevelt to exclaim in a letter: “Thank God I’m not a Free Trader.”

After World War II, Japan started the present trade war by closing its domestic market, subsidizing its manufacture, selling its export at cost, and making up the profit in the closed market. Japan’s thrust for market share put General Motors into bankruptcy with Toyota No. 1. I worked with business in this trade war to protect its domestic production, passing numerous trade bills, only to be vetoed by presidents of both parties because of the Cold War. But when President Clinton passed NAFTA with Mexico, offshoring began in earnest. And 10 years ago, when China entered the World Trade Organization, offshoring hemorrhaged. Now, Corporate America, instead of fighting free trade, cries “free trade,” “protectionism,” “don’t start a trade war.” Globalization is nothing more than a trade war with manufacture looking for a cheaper country to produce goods.

Wall Street, the big banks, the financial houses, the Business Roundtable, and the U.S. Chamber of Commerce are a fifth column in this trade war. They’re not interested in creating jobs in the United States. They’re interested in investment offshore to keep their profits up in the market. The CEOs are not interested in taking on labor worries with domestic production. They want to keep China profits flowing for their golden parachute. Consequently, they oppose getting into the trade war.

If the president enforces trade laws or Congress introduces a trade measure, coming down on their heads will be Tom Donahue of the U.S. Chamber of Commerce and the Wall Street crowd, contributing to their defeat. So business leadership, the President, the Congress, all join in a charade of “free trade,” “don’t start a trade war.”

The best example of a president sleep-walking through the trade war is his hectoring CEOs to invest in production and jobs in-country. If you were a CEO, would you invest in-country? The first thing the banker asks is: “Can you meet the China price?” If not, even though your investment succeeds, cheaper imports from China of the same article will soon put you out of business and the loan goes bad. The harsh truth is that in globalization it is difficult to produce goods for a profit in the U.S. In globalization only the government can make it profitable to manufacture and protect Corporate America’s investment.

In globalization, the task is for the president and Congress to make it profitable to produce in the U.S.

UnConflicted is the small business advocacy blog of Frank Knapp, Jr., President & CEO of the South Carolina Small Business Chamber of Commerce. Visit our website to join, subscribe to our newsletter, or follow the issues affecting small businesses in SC: http://www.scsbc.org